I’m a firm believer that good analysis is always better than having good system. You can have both of them of course, but sometimes we forget about how important our own analysis is.
First, you need to decide what currency pairs to trade and what direction to trade them.
To get this information, you need to turn to the long term charts, such as 4 hour charts, daily or even the weekly charts.
Here is a good example:
In this chart, the AUDNZD was clearly rejected from the bottom of the range, so where do you think it is likely to go in the coming days?
And that’s it. That is what you need to conclude on every pair you are trading:
- If the market is likely to continue its way up: you look for long opportunities.
- If the market is likely to continue its way down: you look only for short opportunities.
- If you have no idea what the market is likely to do: you move on and look for clearer currency pairs.
Ok, now you know what currency pairs to trade and what direction to trade them, now the question is: where should you trade them?
It’s time to focus on the short term chart, let me show you the same currency pair, but now using the short term charts:
We have a clear support level (green level) just below LOPS1.
Every time the market gets close to this level, guess what happens? It changes direction, it gets rejected from this level.
So if you asked me where to go long, my first answer would be when the market is likely to change direction.
I would look then for long opportunities around the support level and place my stop loss level below the same level, making sure there is enough room for the market to express itself.
And there you go, now you have terrific trading plan, you know that the AUDNZD is likely to continue its way up, and you also know where in the short term charts it is likely to get rejected.
Sounds like a plan you would use?